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Understanding Permanent Life Insurance

Part 2 in a series of educational presentations about life insurance from author and speaker Tony Steuer. For planning tools and more answers to your questions about life insurance, go to his website at: www.lifeinsurancetoolbook.com.

4.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
It’s your money – monitor it, understand
it, and know what you are getting for it.
All life insurance policies promise to pay an agreed sum of
money to a beneficiary (or beneficiaries) upon the death of
the insured person, as long as the policy is in-force (i.e.
premiums have been paid on time). But, all life insurance
policies are not the same.

5.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
A LITTLE RESEARCH
CAN MAKE A BIG DIFFERENCE
Consumers who take a
little time to research life
insurance will increase
their understanding and
be better equipped to
purchase a policy that
meets their needs and
their budget.
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6.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
The policy you choose should
meet your unique needs
ü To determine how much life insurance you
need and which type of policy best serves your
needs, answer the following 6 questions:
1. The amount of yearly income that would need to
be replaced if the insured died;
§ This is typically between 60% to 80% of the insured
person’s yearly income. Consider any lifestyle changes,
and include current expenses such as mortgage/rent,
groceries, clothing, utility bills, travel, transportation,
childcare, etc.
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7.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Your unique needs, continued:
The length of time that this income would need to be
replaced;
• Multiply the length of time with the amount of
annual income needed from No. 1.
3. Administrator and tax expenses;
• This can be approximately six months or 50% of the
higher wage earner’s annual salary, and helps to
pay for final expenses such as advisor fees, filing
estate taxes, etc.
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8.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Your Unique Needs, Continued:
4. Funeral expenses
• The average cost is $10,000.
5. College expenses for surviving children;
• The average costs (2009-2010):
*For one year of public: $60,850,
*For one year of private: $182,540.
6. Mortgages, loans, and debts;
• It may make sense to pay off these debts, depending
upon the survivor’s income.
8

9.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Your unique needs, continued:
Now, consider the assets and other
income available to help with
expenses.
As your other assets grow, such as
savings and retirement plans, your
need for life insurance decreases.
For tools to help you plan, visit the
Resources section of:
www.tonysteuer.com/resources/
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10.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Term Insurance: The Basics
• Term insurance is purchased for a specific number of years.
• The premiums are lower than those for permanent
insurance. (Some companies are now offering guaranteed
level premiums for extended periods, from 10 to 30 years.)
• The policy expires without any value at the end of the
term.
• Most term policies cannot be renewed after age 75.
• It is temporary coverage intended to meet a short-term
need.
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11.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Permanent Insurance: The Basics
• Permanent insurance provides
coverage for the rest of your life -
Coverage may stay in place to age 95
or greater.
• The benefits are different for each
type of policy, however every policy
has has a face amount that will be paid
upon the death of the insured, or
upon the policy’s maturity date.
• The benefits range with each policy,
and can help to pay estate taxes, pay
off a mortgage, pay for college
expenses for surviving children, etc.
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12.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Permanent Insurance: The Basics
• Premium payments usually (but not
always) remain the same each year.
• The premiums are usually much
higher than those for term insurance.
• Premiums can stay level, and made
more affordable when purchased
early.
• Premiums can be discontinued later,
under certain circumstances.
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13.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Permanent Insurance: The Basics
• The policy develops a cash value that is
tax deferred. (Also called the cash
surrender value.)
• A long-term commitment is needed
from the buyer, since little or no cash
value accumulates in the first few years
(in most cases.)
• Access to the cash value is given
through loans and withdrawals.
Taking cash out will affect your policy,
so understand the fees and interest that
will be charged.
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14.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Permanent + Term
Combining the Two
Some companies offer a combination of term
and permanent insurance using a rider, or
by giving you the ability to change types of
insurance as time passes.
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15.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
How Expenses Are Deducted
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• Mortality charges (also known as cost of insurance): are deducted from your
account balance. These charges are based on actuarial assumptions and these
are adjusted periodically. Ask what to expect for the policy you are
considering, and compare companies.
• Expense charges (EXP): are deducted from your premiums. These charges are
affected by how well, or efficient, the company operates. These include
underwriting expenses, overhead, and commissions. Find out what these are
for the policy you are considering, and compare companies.

16.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
The Impact of Loans & Withdrawals
Loans or withdrawals can be taken out after you have
accumulated cash value.
• A loan or withdrawal can affect the long-term performance of
your policy.
• Borrowing from a policy can lead to its eventual lapse if the
loan is not repaid.
• Fees and interest will usually be applied too, so make sure
you understand the total affect this will have on your policy.
• To learn more review the article “Pitfalls of Policy Loans” at
www.tonysteuer.com (media section) or review Questions
#106-109 in “Questions and Answers on Life Insurance
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17.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
+ Adding Value - Deducting Expenses
Step 1: “Water goes in” -- You pay premiums into your account, and
the company adds interest (according to your policy’s rate).
Step 2: The insurance company turns on the spigot, deducting the
COI and EXP monthly, leaving the remainder value.
Step 3: Subtract the policy’s surrender fees and that is your surrender
value.
Step 4: If there is not enough “water” left in the barrel, the policy
will end (or lapse).
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18.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Types of Permanent Insurance
Below are some common types of permanent life insurance. Keep in mind,
there are many variations of each type.
• Endowment
• Whole Life (also called Ordinary and Straight)
• Limited Pay
• Adjustable Life
• Adaptable Life
• Universal Life
• Joint (or Survivorship) Life
• Variable Life
• Variable Universal Life
• Equity Indexed Universal Life
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19.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Is it time to review your policy?
As time passes and your
life changes, review
your life insurance
policy and make sure it
is still working for you.
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20.
By Tony Steuer, CLU, LA, CPFFE Visit: www.tonysteuer.com
Part 1:
Permanent Life Insurance
To learn more about
term life insurance
see Part 1 on the
Life Insurance Toolbook
Slideshare channel.
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